Changing Executive Mindsets on Global Product Integrity: The Fight Against Counterfeiting Is Here to Stay

I recently interviewed the Director of Brand Protection at a large pharmaceutical company, who shared with me the timeline around how his company gradually shifted and changed its views on brand security, and built a business case around the need to engage the supply chain team and others in the fight against counterfeiting.  He noted first that  when he joined 15 years ago, there was not a lot of understanding around the brand protection issue and the challenges of counterfeiting outside of the domestic market.  To engage others, he started out  by drafting a position paper on the issue, with the goal of educating executives that counterfeiting was indeed a problem!  The brand protection group initially got some support and financial backing, and operated under the Intellectual Property Department for a while.  Over time, the company began to take on additional acquisitions and became more globally positioned, and recognized they needed to organize brand protection as a truly global function that was more centralized.

He emphasized to me that “It is great to have a security department, but I feel that you lose the focus around product protection, which is really about establishing a quality/integrity position.  As such, we became a Global Quality and Product Integrity team, which fits what we do because we have so many regulatory commitments and are concerned with patient safety.  Within the security organization brand protection was more about people, and we weren’t as effective, and in global quality we are able to be more aligned with other operational functions like global manufacturing, supplier quality, logistics, packaging, and supply chain.  One of the big changes is that we used to simply have a bi-annual “committee-style” meeting, which was very broad, and everyone reported into it.  However, we felt this meeting wasn’t as operational as it needed to be.  Instead, we have moved to “working groups” that focus on specific projects and issues, depending on what problem we are trying to solve.  For instance, if we are talking about global counterfeiting of packaging, we will need to set up a project plan with Global Manufacturing and Supply.  Or if we are focused on customs recordation, the team will include the IP department.  My team is set up to be able to cover many different areas, and is focused on functional integration and driving results.   We still have bi-annual reports to the head of GMS and Global Qualty on our progress, but have found it is much more productive to have specific working groups working on solutions with our internal and external network.

To assess whether progress is being made in the fight against counterfeiting, appropriate measurement with a result focus is fundamental.  It is not possible to assess whether progress is being made without having a baseline against which to compare the activity undertaken.  This is not as easy as it sounds, as setting measures and tracking ROI is often a tricky business for counterfeiting.  Part of the challenge, as alluded to earlier, is that many organizations do not want to acknowledge that it is a problem to begin with.  Some of the best practices identified in presentations at an A-CAPP meeting I attended last year include the following.

• Focus on measures that matter most to the business
• Align on measurement and risk-based prioritization models with Finance and Commercial partners – validate assumptions and beliefs
• Preserve credibility by being transparent – inform decision makers about caveats, estimates.
• Be consistent – calibrate assumptions and standardize process across the team.
• Adopt methodologies and models from management practices.

A study by Jeremy Wilson from A-CAPP found a number of important attributes existed for measuring progress in brand protection.  The study involved conducting a number of roundtables, workshops, and interviews with executives over a period of time, and a few key learnings emerged from these sessions.

The first issue is how to measure success.  Is the goal really to have zero percent counterfeiting activity in the supply chain?  Is this a realistic and profitable goal?  And what is it costing the enterprise in terms of the failure to control counterfeiting.  These are some of the key questions that must be agreed on by the council.  Another important metric is to understand how one is going to define and measure the “return on investment”?  Combating counterfeiting will require significant funds and time on the part of the organization, so there needs to be an appropriate method to quantify the costs, as well as the potential “benefits” of eliminating counterfeiting.  This forces the team to agree on some key questions:

• What is the size of the problem? Developing this metric may involve collecting volumes by different brands, which may involve collection of data from many different sources.
• What does return on investment mean in the context of counterfeiting?
• Is the goal to achieve zero percent counterfeit activity? Is this profitable
• What is the real cost of tracking down counterfeit products? This is difficult to estimate if you don’t know the size or the source of the problem.
• What is the cost of failure (e.g. the cost of doing nothing) about counterfeiting?
• How do we collect data to populate metrics, and what is the timing for these metrics?

A-CAPP, in their study, identified how two large Fortune 100 companies were addressing these issues.  Some of the key metrics to make a business case for ROI was  in terms of value of goods recovered (hard dollars) and seizures of illicit goods (soft $).  The problem with these measures are that

• They miss out on the value of preventing counterfeiting from happening altogether.
• The ability to track and halt online counterfeit sales is almost impossible to quantify.
• Supplier diversion activities typically incur penalties that are quantified as recovery $.

The other problem with these measures is that they fail to capture the issue that counterfeit degrades the brand, and incurs the following types of costs that are difficult to track and quantify:

• Lost sales revenue
• Lost market share
• Brand demand/erosion due to poor quality experiences by customers.

Be prepared for a long-extended battle.  Counterfeiting is not something that can be solved in a year or two, but must become a core part of the organization’s mandate and infrastructure for the foreseeable future.  For instance, one manager I spoke with at the A-CAPP summit emphasized that:

“There is a need to come to grips with the fact that there is apathy on the part of the consumer towards document and brand fraud.  Prescription fraud is an issue that is also not adequately highlighted, although many people are apparently happy to buy fake drugs on the Internet at a discount and ingest them!  There is no single silver bullet that will work, but there needs to be a layering of security processes and bringing together different technologies that span covert, semi-covert, and overt technologies to stay ahead. “